The Foundational Economy

We have piled up enough academic critiques of capitalism to reach to the moon and they may make us feel better but they do not change the world. We need to combine criticism with a positive vision and a language which is politically intelligible and intellectually radical. Hence our promotion of the foundational economy as an organising concept.

British political elites have rediscovered industrial and regional policies about promoting key sectors and funding infrastructural improvement; and Westminster politicians increasingly accept the case for some form of decentralisation. But the UK continues to deindustralise as outer regions fall further behind the city state of London; and devolution to the Celtic nations and English city regions runs ahead of imaginative thinking about devolved policy or any questioning of the objective of competitiveness.

In a Manifesto for the Foundational Economy and subsequent work, Centre for Research on Socio-Cultural Change (CRESC) researchers have proposed an alternative approach which focuses on how the sheltered sectors of the economy can be reorganised so as to generate welfare gains and diffuse prosperity.

This work develops the idea that government is experiment and argues that since 1979 we are victims of a dogmatic, centralised experiment in promoting competition and markets; with success measured in terms of job creation and GDP growth.

This approach grows out of, and informs our work, with non-academic partners, like Enfield Council and Federation of Small Business (Wales) in loser areas where local politicians, interest groups and ngos are increasingly convinced that orthodox policies can address but will never resolve their worsening problems.

Our alternative approach can be summed up in the following three key propositions.

The mundane 'foundational economy' is vital but neglected

The UK has lost much of its manufacturing but retains its 'Foundational Economy'. This is the sheltered sector of the economy that supplies mundane but essential goods and services such as: infrastructures; utilities; food processing, retailing and distribution; and health, education and welfare. The foundational economy is unglamorous but important because is used by everyone regardless of income or social status, and practically is a major determinant of material welfare . The foundational economy employs around 10 million people or 35% of the working population; whereas current industrial policy focuses on manufacturing which employs just 8 per cent.

The foundational economy aim is pervasively mismanaged because of destructive short-term

Profitability is important, but so too is the broader social and economic context. Current UK economic orthodoxy does not sufficiently attend to the latter. Private companies and public organisations focuses instead on a 'point value' logic, seeking the “best value” of most profit or least cost in each individual transaction. This kind of point value is destructive because it undermines the mutuality which is necessary to sustain productive capacity along supply chains, and dangerously narrows ideas of innovation.

Alternative policies can work by developing social franchises which aim to re-territorialise and build grounded regions

Most foundational activities involve branches and networks with some degree of natural monopoly reinforced by implicit or explicit state guarantees. CRESC suggests that the state should use this leverage to treat such activities as ‘social franchises’ and thereby increase the local benefits for the communities whose purchasing power sustains foundational activities Under social franchises, large public and private foundational organisations would be obliged to offer social returns such as: supporting local communities and firms; living wages; sustainable supply chains; import substitution; and/or energy and resource sustainability.

Recommended reading

A brief overview

Karel Williams and Sukhdev Johal (2013), 'Rebuilding the Regions', 31-33, in John Cruddas, One Nation Labour - Debating the Future, London: LaborList.org, available at One Nation Labour - Debating the Future.

Supplementary reading

On point value reasoning see Bringing Home the Bacon on the pig industry, and How Not to Build Trains on the Thameslink procurement process

On the realities of franchising. The train operating companies profit from risk-free, state-structured, state-subsidised business environments. See The Great Train Robbery and The Conceit of Enterprise

On the failure of existing industrial policy with its focus on export-led industries and neglect of the mundane foundational economy see Against New Industrial Strategy: Framing, Motifs and Absences

On point value reasoning and financial instability see Deep Stall? The Euro zone crisis, banking reform and politics